Thursday June 10, 2010

From Allison Wollam and Casey Wooten, Portolio.com: Offshore oil drillers and politicians aren’t the only ones feeling the heat since the Deepwater Horizon oil rig began spewing thousands of gallons of oil a day into the Gulf of Mexico.

While the ultimate environmental impact of the massive oil spill that began on April 20 is yet to be known, owners of Houston, Texas-area restaurants that feature seafood and related businesses are increasingly concerned over the short- and long-term economic effects of the ecological disaster.

The Houston Business Journal spoke to well-known restaurateurs and chefs as well as other company executives about what impact is being felt or what steps they are taking—one local restaurant group has filed suit against BP and others for the potential loss of revenue—and found some surprising developments:

Bryan Caswell, owner of the popular, award-winning Reef restaurant, which is 100 percent dependent on the Gulf Coast for fresh seafood, says he’s more concerned as each day passes and crews are still not able to contain the oil leak.

“If you asked me two weeks ago, I wouldn’t have been so concerned, but they haven’t been able to stop it, and it’s really worrying me,” he says. “I don’t know what I’m going to do if it gets to Texas.”

Caswell says several generations of his family have been involved in the oil business, and he’s even heard hardcore oilmen express concern over the long-term effect the oil spill will have on the restaurant and fishing industry.

Caswell says days after the spill he was most concerned with assuring customers that it was still safe to eat at Reef, but now he’s more concerned with procuring the different species of seafood served at his restaurant.

He says about 75 percent of the seafood he gets comes from the Freeport and Galveston, Texas, areas, which haven’t been affected yet, but he says he can no longer get oysters or crabs from Louisiana waters. The federal government has extended a no-fishing area in the Gulf to more than 400 miles in length and 100 miles wide extending from the southeast tip of Louisiana.

He adds that he’s seen an approximately 16 percent to 20 percent increase in prices since the day of the oil spill and says he usually doesn’t pass costs on to customers for temporary situations, but may soon have to look at raising prices to balance the cost of the fresh seafood.

“We made our name on offering dishes solely from the Gulf Coast and offering the most unique species that you couldn’t find anywhere else,” he says. “We’re at a pretty good time right now with a lot of fish in season, but the demand for the fish is now outnumbering the supply.”

Rap superstar Jay-Z, who is married to Houston pop diva Beyonce Knowles, once stopped by the Reef and told Caswell his crab cakes were “solid.” Despite his own concerns, Caswell says he hasn’t noticed a decline in customer traffic, but says he definitely hasn’t noticed an increase either. “What’s going to be bad is if it continues for weeks,” he says. “That’s scary for a guy like me.”

Houston-based Pappas Restaurants Inc., which has about 100 restaurant locations in seven states, has already filed a lawsuit against Transocean Deep Water Drilling Co. and BP for damages caused by the oil spill, and Caswell says he’s also contemplating taking legal action against the oil companies.

“I probably rely on the Gulf even more than Pappas does because they sell a variety of other things, and everything I have comes from the Gulf,” he says. “If they shut me down, I’ll definitely do something, because it’s not my fault this happened.”

The lawsuit filed by Pappas Restaurants Inc. against BP is a rarity for a restaurant chain and may be a harbinger of legal action to come against the oil company, says Victor Flatt, an environmental law professor at the University of North Carolina-Chapel Hill School of Law.

“Certainly fishermen have sued over oil spills before, but what’s different about Pappas is that they haven’t actually done the fishing themselves.”

On the one-month anniversary of the Deepwater Horizon explosion, Pappas filed a lawsuit for an unspecified amount against BP and other companies involved in the disaster, claiming that the chain suffered “irrevocable damage” from the oil spill.

Pappas claims it has suffered loss of business, profits, and damage to its reputation, as it markets itself as specializing in Gulf seafood.

The restaurant chain may be one step removed from its connection to Gulf fisheries, but Flatt says it won’t be hard for them to make a damage case. State governments have closed 19 percent of the fishing area around the spill and the long-term damage to fish and other seafood stocks has yet to be determined.

But that’s not to say the suit is a slam dunk, he says.

“On the other hand, it is possible that there could be a concern with the ‘proximate cause’ issue,” says Flatt.

Proximate cause is when a court decides how far outward liability is extended against a plaintiff. Without it, anyone who buys a pack of shrimp at the grocery store could sue BP for the spike in seafood costs. “It’s pretty clear that it would extend to a fisherman, but it’s not clear how far you extend it into the market,” says Flatt.

Flatt says he expects those closely tied to the fishing industry to walk away with some money. Although Pappas has a good case, they are far less of a sure thing. But if the restaurant chain does win, Flatt says, it may be the first in a string of lawsuits by restaurant chains looking to recoup financial setbacks caused by higher seafood prices.

Until April 20, the day the Deepwater Horizon oil rig caught fire and exploded, the owners of Bistro Don Camillo had crabs on their mind. Each year, restaurant owners Jean Philippe and Genevieve Guy prepare a special menu in honor of France’s Bastille Day on July 14. The menu always matches the tri-colors on the French flag: blue, white, and red.

The “blue” course was to be blue crab from the Gulf of Mexico. But now the owners say that menu item is, well, dead in the water. Philippe and Guy are now leaning toward offering a dish featuring fromage bleu (blue cheese).

Tony Vallone, owner of Tony’s restaurant, which serves a wide variety of upscale seafood dishes, says he’s more worried about escalating prices rather than a scarcity of seafood items.

“So far, we have held the line and haven’t had to raise prices, but if (our) prices keep going up, we’re going to have to pass it on to our customers eventually,” he says. “We’re still offering the same seafood menu items that we did before, but we’re paying more for them.”

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